[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
TRANSPARENCY AND INTEGRITY IN
CORPORATE MONITORING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 19, 2009
__________
Serial No. 111-64
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida STEVE KING, Iowa
STEVE COHEN, Tennessee TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr., LOUIE GOHMERT, Texas
Georgia JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico TED POE, Texas
MIKE QUIGLEY, Illinois JASON CHAFFETZ, Utah
JUDY CHU, California TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
Perry Apelbaum, Majority Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
------
Subcommittee on Commercial and Administrative Law
STEVE COHEN, Tennessee, Chairman
WILLIAM D. DELAHUNT, Massachusetts TRENT FRANKS, Arizona
MELVIN L. WATT, North Carolina JIM JORDAN, Ohio
DANIEL MAFFEI, New York HOWARD COBLE, North Carolina
ZOE LOFGREN, California DARRELL E. ISSA, California
HENRY C. ``HANK'' JOHNSON, Jr., J. RANDY FORBES, Virginia
Georgia STEVE KING, Iowa
ROBERT C. ``BOBBY'' SCOTT, Virginia
JOHN CONYERS, Jr., Michigan
JUDY CHU, California
Michone Johnson, Chief Counsel
Daniel Flores, Minority Counsel
C O N T E N T S
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NOVEMBER 19, 2009
Page
OPENING STATEMENTS
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Chairman, Subcommittee on Commercial
and Administrative Law......................................... 1
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Ranking Member, Subcommittee on
Commercial and Administrative Law.............................. 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Chairman, Committee on the
Judiciary, and Member, Subcommittee on Commercial and
Administrative Law............................................. 4
WITNESSES
Mr. Anthony Barkow, Executive Director, Center on the
Administration of Criminal Law, New York University School of
Law
Oral Testimony................................................. 6
Prepared Statement............................................. 9
Ms. Eileen R. Larence, Director of Homeland Security and Justice,
U.S. Government Accountability Office
Oral Testimony................................................. 32
Prepared Statement............................................. 34
Mr. Gil M. Soffer, Partner, Katten Muchin Rosenman, LLP
Oral Testimony................................................. 55
Prepared Statement............................................. 57
Mr. Brandon L. Garrett, Associate Professor of Law, University of
Virginia School of Law
Oral Testimony................................................. 64
Prepared Statement............................................. 67
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan,
Chairman, Committee on the Judiciary, and Member, Subcommittee
on Commercial and Administrative Law........................... 4
APPENDIX
Material Submitted for the Hearing Record
Material submitted by the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Chairman,
Subcommittee on Commercial and Administrative Law.............. 96
TRANSPARENCY AND INTEGRITY IN CORPORATE MONITORING
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THURSDAY, NOVEMBER 19, 2009
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:10 a.m., in
room 2141, Rayburn House Office Building, the Honorable Steve
Cohen (Chairman of the Subcommittee) presiding.
Present: Representatives Cohen, Conyers, Johnson, Franks,
and Coble.
Staff present: (Majority) Carol Chodroff, Counsel; Adam
Russell, Professional Staff Member; and (Minority) Zachary
Somers, Counsel.
Mr. Cohen. Good morning. This hearing of the Committee on
the Judiciary Subcommittee on Commercial Administrative Law
will now come to order. Without objection, the Chair will be
authorized to declare a recess of the hearing, and I will now
recognize myself for a brief statement.
This morning the subcommittee revisits the selection and
use of independent corporate monitorships, an issue that was
first raised in the 110th Congress. This issue was considered
again in this Congress in a hearing on the use of deferred or
non-prosecution agreements, a.k.a. DPAs, in criminal cases
involving criminal corporate defendants.
With the growth in the use of corporate deferred and non-
prosecution agreements in the last decade, it became evident
over time that there were no meaningful standards governing
when the government could or should enter into such agreements
or what the scope of such agreements should be. Even more
troubling was the complete lack of guidance with respect to the
selection and use of and the compensation for corporate
monitors to implement such agreements.
The absence of standards governing how corporate monitors
were to be selected and what the scope of their authority led
to disturbing suspicions of abuse. Caesar's wife came into our
Committee once again with issues concerning the propriety of
appointment of certain individuals and the multi-million
dollars that they received.
One notorious example, which we explored in our previous
hearings, was the Zimmer case. That is when Caesar's wife was
very disturbed. U.S. Attorney then, now governor-to-be
Christopher Christie, selected former Attorney General John
Ashcroft to serve as a corporate monitor, for which Mr.
Ashcroft collected a fee of up to or in the neighborhood of or
resembling or within the margin of error of $52 million. A tidy
sum, it could pay for some drycleaning for Mrs. Caesar's robes.
The circumstances surrounding his appointment and service
as a monitor were not made public at the time of his selection,
and no provision was ever made for oversight or accountability
concerning his performance as monitor. This lack of
transparency was troubling to our subcommittee and to the
corporate world and to the public, as articulated in several
articles and media reports. That was Caesar himself, yes.
These concerns prompted the subcommittee to hold hearings
on this issue and to request the Government Accountability
Office to investigate the matter. Their report will be released
in the next few weeks, and I look forward to learning what the
Government Accountability Office discovered.
The Department of Justice has also provided some guidance
with respect to the selection of corporate monitors. Although I
appreciate the steps they have taken, they are not etched in
stone or statute, and more, therefore, is needed. There must be
a fundamental change in the monitoring process so that we can
ensure greater transparency and integrity and safeguard against
the abuses or appearance of abuse in the past.
The perception of unfairness and cronyism undermines
governmental authority and integrity in the judicial justice
process, and the selection of corporate monitors to oversee
pretrial agreements must be fair, and it must be perceived as
fair. Public trust and confidence are essential elements of an
effective justice system. Sometimes the appearance of justice
is just as important as justice itself, the reality thereof.
Congress has a critical role to play in this area, and I
believe the guidance governing the selection and use of
corporate monitors should be codified in Federal statute,
therefore not leaving it to the whims and caprices of future
Administrations.
Accordingly, I have drafted, or had drafted, the
Transparency and Integrity in Corporate Monitoring Act, which
will protect against actual and perceived conflicts of interest
with respect to Federal prosecutors who leave the U.S.
attorney's office to work as corporate monitors. I believe this
bill will fill an important gap in providing accountability and
transparency and avoiding abuse with respect to the selection
and use of corporate monitors.
There are revolving doors in most areas of government, in
most states as well as Federal systems, and a revolving door is
not a bad thing, for if you move with it, you don't get hit on
the rear as you leave. I look forward to discussing these
corporate monitoring issues and thank our witnesses for being
here today.
I now recognize my colleague, Mr. Franks, the distinguished
Ranking Member of the Subcommittee from the State of Arizona,
for his opening remarks.
Mr. Franks. Well, thank you, Mr. Chairman.
I thank all of you for being here.
Mr. Chairman, deferred prosecution agreements are an
invaluable tool in the Justice Department's arsenal for
combating corporate crime. These agreements allow the
government to achieve all the benefits of a criminal
prosecution without subjecting the companies, their employers,
their employees and shareholders to the collateral consequences
of a prosecution and conviction.
In contrast to the far more rigid criminal sentencing
process, deferred prosecution agreements permit the Justice
Department and corporate defendants to work together in a more
flexible environment to remedy past violations and prevent
future illegal conduct. They serve to rehabilitate the company,
root out illegal and unethical conduct, discipline culpable
employees, help promote good citizen corporate citizenship
going forward, and they allow prosecutors to achieve more than
they could through the court-imposed fines and restrictions
alone.
The benefits of deferred prosecution agreements have been
recognized by Bush I, Clinton, Bush II and Obama Justice
Departments. In some cases part of an effect of a deferred
prosecution agreement is the use of a corporate monitor to
oversee the implementation of and compliance with the
agreement's provisions.
Corporate monitors help ensure that companies institute
meaningful changes and develop the best compliance programs
possible. Additionally, corporate monitors can verify that
companies are fulfilling the obligations of the deferred
prosecution agreement to a much greater extent than the
department could accomplish on its own.
Now, despite the benefits of corporate monitors, their use
has engendered criticism in recent years in the press and from
some Members on the other side of the aisle. Much of this
criticism was levied, in my opinion, to an attempt to derail
the gubernatorial campaign of former New Jersey U.S. Attorney
Chris Christie.
As hearings before the subcommittee demonstrated, however,
the criticism of Governor-elect Christie's use of corporate
monitors was unjustified. Yet we are here today to consider
whether legislation is needed to avoid conflicts of interest in
the appointment of compliance monitors.
And honestly, I do believe the case has been made that
congressional legislation is needed. I think that it is not
needed in this area. I don't see the case. It is not to say
that I believe that the appointment of corporate monitor should
be ungoverned. I just don't think there is credible reason to
believe that Justice Department has or has not or cannot
develop sufficient internal regulatory guidance on the
appointment of corporate monitors.
It seems to be an area where we are majoring on a minor,
and maybe taking the risk of having to minor on majors. Over
the past 10 years since the initial Holder memo on deferred
prosecution agreements, the department has continually fine-
tuned its rules for these agreements.
And at this point, I think the Nation's corporate law
enforcement goals would be best served by continuing to leave
it to the department to ensure transparency and integrity in
corporate monitoring. We do not need to unnecessarily tie the
department's hands with legislation at this point, in my
opinion.
So in closing, let me just say that I find it disappointing
that the Committee is once again revisiting the subject of the
appointment of corporate monitors when we have yet to take a
look at the Obama administration's appointment of countless
policy czars. Certainly, these czars, who are not subject to
Senate confirmation, wield far greater power than any corporate
monitor.
And I hope that in future the Chairman will direct this
Committee's oversight efforts to these constitutionally
questionable, yet highly powerful czars to the same degree that
we have investigated corporate monitors.
And I look forward to the witnesses' testimony, and I thank
the Chairman and yield back the balance of my time.
Mr. Cohen. Thank you, Mr. Franks. And as soon as the
Chairman gives me jurisdiction over czars, right now we are
just dealing with, like, you know, Roman times and their wives,
but once we get up to czarist Russia and the Chairman gives me
that authority, well, we might look into that.
Mr. Chairman, is that something you would like to get
into--czarist Russia?
Mr. Conyers. Would that jurisdiction come to your
Committee?
Mr. Cohen. I tend to doubt it.
Mr. Conyers. Well, if it doesn't----
Mr. Cohen. Commercial and--well, that was kind of a
commercial. That was infomercial against the Obama campaign, so
it could be considered commercial.
Mr. Conyers. If it would come to your Committee, I would be
more disinclined to----
Mr. Cohen. Moving right along with our bombastic review,
thank you, Mr. Chairman.
I thank the gentleman from Arizona for his statement.
I now recognize Mr. Conyers, the distinguished Chairman of
this Committee, distinguished Member of this subcommittee, and
a icon and lion in the legislative world of the United States
of America.
Mr. Conyers. Thank you, Chairman Cohen, Mr. Frank, Ranking
Member.
I have asked for the notebooks. Mr. Christie left the
hearing rather abruptly the last time, and I just wanted to try
to refresh my memory to see if there could be any useful
purpose in asking him to rejoin the Committee. And I will put
my statement in the record. Thank you.
[The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, Chairman, Committee on the
Judiciary, and Member, Subcommittee on Commercial and Administrative
Law
Today's hearing will focus on the selection and use of independent
corporate monitors to oversee deferred prosecution and non-prosecution
agreements.
In January of 2008, media reports detailing questionable
appointments of independent monitors by the Justice Department under
the prior Administration began to surface. In response, the Judiciary
Committee conducted an investigation into the Department's use of
deferred prosecution and non-prosecution agreements.
We soon learned that the lack of guidelines in this area had led to
vast discrepancies across jurisdictions in the terms of agreements and
in the selection of corporate monitors to oversee them.
To address these concerns, the Department issued guidelines on
monitor selection in March 2008, and mandated the collection and
tracking of these agreements.
Last fall, the Government Accountability Office commenced an
examination of the Department's use and oversight of deferred
prosecution agreements and non-prosecution agreements, including a
focus on the selection and use of corporate monitors.
I understand that report is due to be released by mid-December. I
look forward to reading the report, and to hearing testimony from our
GAO witness and our other witnesses this morning.
I am pleased to hear that, by most accounts, there has been
positive progress in this Administration with respect to greater
transparency, uniformity, and accountability in this area.
It is important to consider, however, what more remains to be done,
and what role Congress can and should play in terms of codifying
guidance to ensure greater transparency and fairness in the process.
There are three key areas I would like to focus on in particular
today.
First, whether the guidelines issued last year by the Department in
the Morford Memorandum are sufficient for providing accountability,
transparency, and uniformity.
As a reminder, on the eve of this Subcommittee's March 2008 hearing
on corporate settlement agreements, the Justice Department issued a
memorandum from then-Acting Deputy Attorney General Craig S. Morford to
the heads of Department components and United States Attorneys,
regarding the selection and use of monitors in deferred prosecution
agreements and non-prosecution agreements with corporations.
This memorandum articulated nine principles covering three areas:
(1) the selection of monitors, (2) the scope of their responsibilities,
and (3) the duration of monitorships.
It also advised prosecutors to consider both a monitor's potential
benefits to the corporation and to the public, as well as a monitor's
cost and impact on corporate operations.
While I applaud the Department for developing these guidelines, I
would like to hear today about whether they quelled the controversy by
ensuring sufficient accountability, transparency, and fairness.
As we discussed at the last hearing, the guidance does not address
whether a deferred prosecution agreement or a non-prosecution agreement
should be used, or how the agreements should be structured.
Also, it fails to rein in the tremendous leverage that the
government and the monitor have over the corporation entering into an
agreement.
Corporations facing criminal prosecution are faced with a very
difficult choice: they can either risk a conviction and a possible
corporate death sentence after trial, or be coerced into accepting the
terms and fees the monitor and prosecutor dictate.
It is important for us to remember that, no matter how helpful the
Morford Memorandum guidance might be, it is only internal Department of
Justice guidance. It is not binding in any court of law.
The second area we should examine concerns the compliance of
prosecutors with the Morford Memorandum guidelines. For example, I
want to know:
Who are the monitors who have been selected since the Morford
Memorandum was issued?
What is the prior professional experience of these monitors?
Have there been actual, potential or perceived conflicts of
interest in the selection of monitors since the Morford Memorandum was
issued?
I would also like to hear whether adherence to those guidelines has
been documented. It is one thing to claim compliance; it is another
thing to demonstrate it.
I don't wish to steal our GAO witness Ms. Larence's thunder, but
she has been working diligently on the GAO's report, and I anticipate
she will be able to shed some light on the compliance issue, and what
still remains unaddressed.
I would also like to explore whether we even have enough
information at this point to determine whether the Morford Memorandum
guidance is sufficient.
From what I understand, since 2008 there have only been four
deferred prosecution agreements and non-prosecution agreements that
have resulted in the appointment of corporate monitors.
Are four cases enough to give us an accurate picture of whether the
abuse or the appearance of abuse in the system has been completely
eliminated?
Finally, the third area I want to examine is the role of Congress
in ensuring transparency and integrity in the selection and use of
corporate monitors.
Although the Morford Memorandum is clearly a positive step,
codification of that guidance might be necessary to ensure the
continuation of positive progress, and to prevent future abuses.
In the last two hearings, we discussed New Jersey U.S. Attorney
(and now Governor-elect) Christopher Christie's appointment of former
Attorney General John Ashcroft to be a corporate monitor in the Zimmer
Holdings case, which was very troubling.
That appointment was made without public notice, without any
bidding, and without any input from a neutral judge or the company
subject to the monitoring.
Mr. Ashcroft reportedly received $52 million for 18 months of work
as a result of this appointment--fees that were apparently non-
negotiable.
In light of the fact that Mr. Ashcroft supervised Mr. Christie when
he was Attorney General, this arrangement presented the strong
appearance of cronyism.
Last May, The New York Times reported that at least 30 of the 41
monitors appointed in deferred prosecution agreements since 1994 were
former government officials, and 23 were former prosecutors.
Congressional action might be warranted to ensure that such
cronyism--or the appearance of it--does not happen in future cases.
I also understand that the Chair of this Subcommittee, Steve Cohen,
plans to introduce legislation to create greater transparency and
integrity in the appointment of corporate monitors.
I hope that today's testimony will illustrate the best path forward
for Congress and the Justice Department to ensure that the corruption
of the past stays in the past, and that the selection and use of
corporate monitors will be transparent and fair, in this new
Administration and beyond.
I thank the witnesses for coming today, and I look forward to your
testimony about this important issue.
__________
Mr. Cohen. Thank you, Mr. Chairman.
Other Members' opening statements will be included in the
record.
Now I would like to welcome the witnesses for today's
hearing and thank you for your willingness to participate.
Without objection, your written statement will be placed in the
record. We have asked you to limit your remarks to 5 minutes.
There is a lighting system there. It starts with the green
light. After 4 minutes it turns yellow, and then after 1 more
minute it turns red. And at that time you should try to
conclude your remarks.
After each witness has presented his or her testimony,
subcommittee Members will be permitted to ask questions under
the same 5-minute limitation, although it won't be as strictly
enforced.
Our first witness is Mr. Anthony Barkow. Mr. Barkow is an
executive director of the Center on the Administration of
Criminal Law, NYU School of Law. Prior to establishing the
center in 2008, he was assistant United States attorney in the
Southern District of New York, where he primarily prosecuted
terrorism and white-collar criminal cases. From 1998 through
2002, Mr. Barkow was assistant United States attorney for the
District of Columbia, and from 1996 to 1998 he was trial
attorney in the attorney general's honors program, the
Department of Justice's Office of Consumer Litigation.
Mr. Barkow, we appreciate your service and appreciate your
being with us. And would you proceed with your testimony?
TESTIMONY OF ANTHONY S. BARKOW, EXECUTIVE DIRECTOR, CENTER ON
THE ADMINISTRATION OF CRIMINAL LAW, NEW YORK UNIVERSITY SCHOOL
OF LAW
Mr. Barkow. Thank you, Chairman Cohen. Chairman Cohen,
Ranking Member Frank and Chairman Conyers and Members of the
Subcommittee, thank you for inviting me to testify before you
today. It is an honor to appear before you to discuss these
issues.
I would like to discuss briefly why I think that this
proposed legislation is beneficial and offer three suggestions
for possible improvement. The proposed legislation would take
steps to fill a gap in the current law that governs the post-
employment activity of former Federal prosecutors.
Current law prohibits former DOJ employees from litigating
the same matters in which they personally and substantially
participated while in government service. However, current law
does not expressly prohibit a former prosecutor from serving as
a monitor for a company that he himself investigated and
prosecuted, nor does it clearly prohibit a former prosecutor
from serving in a monitorship that arose out of a deferred
prosecution or non-prosecution agreement that she herself
negotiated. The proposed legislation remedies these gaps.
This proposed legislation is important for several reasons.
First, it would target the problem of revolving door monitoring
employment and the perception of self-dealing by prosecutors.
Actual self-dealing, of course, is corrupt and criminal, but
public confidence in government is undermined even by the mere
appearance of self-dealing.
If it looks like there is a revolving door between
government service as a prosecutor and a monitorship for a
private company, there is a real danger that it will foster
public cynicism about government by feeding the public's belief
that government actors are not always looking out for the
public's interest, but rather their own. Even if government
actors are not in fact corrupt, the perception of corruption in
government activities has a dispiriting and corroding effect.
Under current law, there is a risk that prosecutors who
have worked on a DPA or NPA will later serve as monitors
because of DOJ's power to select those monitors and the fact
that monitors are often DOJ or SEC alumni. After searching
public documents, I am unaware of any monitors who have been
appointed who previously worked on the same matter that they
later monitored. Nonetheless, the proposed legislation would
impose prophylactic measures that would eliminate the
possibility of such appointments.
Second, the proposed legislation would be appropriately
tailored to address this danger. If an apparent scrivener's
error that I will mention in a moment is corrected--or would be
corrected--the proposed legislation would bar former
prosecutors from acting as or working for a monitor only on the
same matters in which they worked while in government. Former
prosecutors could still serve as monitors, as long as they had
no involvement with the investigation or prosecution of the
company subject to the DPA or NPA.
Third, the proposed legislation appropriately would apply
not only to U.S. attorneys, but also to AUSAs. Given that the
proposal's primary policy benefit would be to prevent actual
self-dealing and to avoid any appearance of impropriety, no
substantive distinction should be made between political
appointees and those who serve under them.
Report of an award of a lucrative monitorship in a no-bid
contract would have an equally deleterious effect on public
confidence, whether it identified the contract recipient as a
U.S. attorney who oversaw the prosecution that created the
employment opportunity as it would if the contract recipient
were the AUSA who handled the prosecution from day to day.
Fourth, the proposed legislation would find analogues in
other areas, which I discuss further in my written testimony.
Fifth, the proposed legislation would have few significant
costs. It would not reduce the actual quality of monitoring.
The supply of available monitors would still include the
thousands of former prosecutors who had not previously worked
on the particular case, as well as people with experience in
corporate America, independent private sector inspector
generals or others, who in many situations might in fact be
better monitors than former prosecutors.
I have three brief suggestions for the subcommittee's
consideration. First, the subcommittee may want to consider
whether the time period of the proposed bar should be
lengthened. The most analogous current provision to the
legislative proposal is the prohibition on advocacy and
representation in the same matter in which the former
government employee participated. That prohibition is
permanent. Similarly, the justifications for the proposed
legislation do not seem to diminish with the passage of time.
Second, the subcommittee may want to consider whether the
scope of the persons covered under the proposed legislation
should be expanded. As it is currently being considered, it
would apply only to former prosecutors of U.S. attorneys
offices, but not to former political appointees or other
lawyers in main Justice, who may also work on NPAs or DPAs as
monitors. There is no apparent reason to exempt DOJ's criminal
division, which is responsible for more than one-third of
monitor appointments or top DOJ officials from these
prohibitions.
Third and finally, the proposed legislation has what
appears to be a scrivener's error that I recommend correcting
that makes it overbroad in one respect. The proposal would bar
monitorships arising out of DPAs only to which a former
employee has a connection, but would bar monitorships arising
out of any NPA, whether the former employee has any connection
to the underlying matter or not.
Thank you again for allowing me to testify and to share my
thoughts on these issues. I would be happy to answer any
questions that you might have.
[The prepared statement of Mr. Barkow follows:]
Prepared Statement of Anthony S. Barkow
__________
Mr. Cohen. Thank you, Mr. Barkow. I appreciate your
observing the red light. And recently deceased and former
person that sat at that chair, Mr. William Safire, would have
appreciated your testimony as well, I think.
Our second witness is Ms. Eileen Larence. Is it Lawrence or
Larence?
Ms. Larence. Larence.
Mr. Cohen. Larence? Ms. Larence currently serves as
director for homeland security and justice issues at the U.S.
Government Accountability Office. In this capacity she manages
congressional requests to assess the various law enforcement
and DOJ issues as well as state of terrorism related
information sharing since 9/11.
Ms. Larence, will you begin your testimony?
TESTIMONY OF EILEEN R. LARENCE, DIRECTOR OF HOMELAND SECURITY
AND JUSTICE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. Larence. Chairman Cohen, Ranking Member Franks and
Chairman Conyers, I am pleased to provide the results of our
ongoing review of Department of Justice practices in using
deferred and non-prosecution agreements rather than prosecution
to address some corporate crime.
My testimony today will focus more specifically on the
department's use of independent monitors to ensure company
compliance with these agreements. Concerns about monitors and
their independence have been raised, especially when U.S.
attorney offices require companies to hire certain monitors,
such as former Attorney General Ashcroft.
For our work, we interviewed or surveyed companies,
monitors and department officials on their views about how
monitors are selected, what experience the monitors have, and
how companies can resolve concerns about their monitors. In 40
cases to date, Justice has required the companies hire and pay
an independent monitor. Justice does this when it does not have
the time, resources or requisite technical expertise to conduct
the monitoring, among other reasons.
Companies usually, but not always, play some part in
identifying and selecting monitors, although Justice approves
the ultimate decision. Company and Justice officials say they
typically use personal knowledge and colleague recommendations
to identify monitors and are usually looking for expertise,
including former Justice experience or certain legal or
industry knowledge, as well as assurance that the monitor is
free of any conflict of interest.
In March 2008 Deputy Attorney General Morford issued
guidelines calling for the department and companies to
collaborate on selecting monitors and to ensure they are
qualified and did not have conflicts, among other things. Each
litigating unit is to use an internal committee to select
monitors and obtain the deputy attorney general's approval on
this decision.
Justice has selected four monitors since the memo and
complied with these guidelines in each case. However, Justice
does not always document its compliance, and in June testimony
to you, we recommended that Justice do so to ensure
accountability. In response, since August, Justice now requires
that the Office of the Deputy Attorney General use a checklist
showing compliance with the guidelines.
So what experience did the monitors provide? Companies have
hired 42 individual monitors so far, and more than half had
previously worked with Justice, although only a few were
selected within 3 years of leaving the department. Eight worked
in the same Justice unit that issued the DPA or NPA. The
remaining monitors had experience in state or local government,
the private sector, and other Federal entities and agencies,
among other areas.
Eight of 13 company representatives we contacted, most of
whom had monitors who worked with Justice, valued and did not
have concerns about the monitor's Justice experience. But five
representatives, including several whose monitors worked at
Justice, said this experience could appear to compromise the
independence, although they did not have this concern with
their individual monitor. The Criminal Division requires
monitors and others to certify they are free of conflicts,
which could be one way to address concerns about favoritism.
Finally, we looked at how companies resolve concerns about
their monitors. Seven of 13 raised concerns about the scope and
performance of their monitors, three about the monitor's total
compensation, and three about the monitor's rates, which range
from about $300 to $900 an hour for companies in our survey.
But some companies were not certain how they could resolve
these concerns or what role Justice could play in this. Justice
officials said the department could help in some instances, but
would be limited, once a company and a monitor signed a
contract, since Justice is not a party to that contract.
Justice officials said it would then generally be up to the
company to ensure the monitor is performing.
Justice also said companies could incorporate the monitor
requirements spelled out in the DPA or NPA into the monitor's
contract and include a provision to terminate the contract if
the monitor didn't perform. But only one of 13 companies we
surveyed had such a provision. And it is not certain what
leverage companies may have to include one, given that Justice
ultimately selects monitors.
The fraud section of the Criminal Division and at least one
U.S. attorneys office include in the DPA or NPA itself an
explanation of the role they will play in resolving specific
monitor concerns. We are recommending that the attorney general
direct all litigating components and use the training offices
to do this, depending on the facts and circumstances of each
case.
Mr. Chairman, that concludes my statement, and I would be
happy to answer any questions.
[The prepared statement of Ms. Larence follows:]
Prepared Statement of Eileen R. Larence
__________
Mr. Cohen. Thank you very much.
Those annoying bells mean we are supposed to vote, but the
15-minute vote really becomes like a 20-minute vote, so we can
probably get both of your testimonies in, if you are nice with
the red light, and I get this introduction done quickly.
Our third witness is Mr. Gil--is it Soffer?
Mr. Soffer. Yes.
Mr. Cohen. Soffer, co-chair of the firm of Katten Muchin
Rosenman--white collar. He joined the firm in August 2000, 6
years Federal prosecutor prior to that, concentrates his
practice in white-collar criminal litigation, corporate fraud
litigation, corporate investigations, insurance litigation and
anti-fraud, counsel to the deputy attorney general in D.C., and
shortly thereafter appointed as associate deputy general.
During his year-long term with the Department of Justice,
he has played an integral part in drafting the department's
corporate monitor principles and corporate charging principles
and provided training on the latter policy to U.S. attorneys
offices nationwide, previously served in DOJ as assistant U.S.
attorney in Chicago from 1994 to 2000.
Will you proceed with your testimony, Mr. Soffer?
TESTIMONY OF GIL M. SOFFER, PARTNER,
KATTEN MUCHIN ROSENMAN, LLP
Mr. Soffer. Yes, thank you. Chairman Cohen, Ranking Member
Franks and Chairman Conyers, thank you very much for the
opportunity to testify today about an issue of great importance
to prosecutors, corporations and the public alike.
As you mentioned, I served last year as associate deputy
attorney general, and in that capacity I have played a role in
formulating the department's corporate monitor principles. We
had one overarching goal in mind with respect to the selection
of monitors, and that was to formulate a selection process
designed to produce both a high-quality and conflict-free
corporate monitor. I believe the department's corporate monitor
principles achieve that goal.
The very first principle goes to the matter before the
subcommittee today. Simply put, principle number one is
designed to ensure integrity in monitor selection. It lays out
several key requirements toward that end.
First, government lawyers involved in the selection process
must comply with all existing conflict of laws guidelines--
conflict of interest guidelines. Second, the government must
establish a committee to review monitor candidates. And third,
the deputy attorney general's office must approve the selection
of the monitor.
Principle one also directs that monitors be selected, where
possible, from a pool of at least three qualified candidates.
Now, these requirements have teeth. That is particularly true
with respect to concerns over perceived cronyism by a
prosecutor's office. Requiring that monitors be vetted by a
committee diminishes the influence of any one person over the
selection process, be that a U.S. attorney or assistant
attorney general or even a line prosecutor.
Likewise, requiring that monitors be selected, if possible,
from a pool of candidates makes it even less likely that
monitors will be cherry-picked by government officials seeking
to reward friends or former colleagues.
Even more significant, requiring the approval of the Office
of the Deputy Attorney General provides an extraordinary check
and balance against the selection of monitors for inappropriate
reasons. And I use the word ``extraordinary'' without
exaggeration. There are few matters at the department that
require consultation with the deputy attorney general's office.
There are even fewer that require the approval of the deputy
attorney general's office, and there are fewer still that
require approval on individual criminal cases.
Now, I have seen the proposed legislation that would
restrict the ability of former prosecutors to serve as monitors
on cases in which they were involved while employed by the
government. A limitation of this sort would certainly mitigate
the perception that government lawyers might choose to work on
a given case with the intent of angling for a monitorship after
their government service expires. It would also reduce the
appearance of favoritism in the selection of monitors.
These are worthy goals, and in fact they would complement
the precautions that are already set forth in the department's
monitor principles. But even assuming that such restrictions
are appropriate, the question remains who should impose them
and when.
Legislation has many virtues, including the force of law,
the imprimatur of this body, and a permanence unlike any
guidance that the executive branch can issue. But it also poses
a risk where the practices in question are evolving and where a
sufficient record of experience has not yet developed on which
to fashion immutable policy. In such matters care must be taken
to avoid imposing an inflexible set of rules that may fit one
type of case, but that restrict the ability of prosecutors and
corporations alike to handle other cases with maximum
effectiveness.
Now, there are clearly sound arguments in favor of imposing
a cooling off period on government lawyers before they become
eligible to serve as monitors. It is not inconceivable, though,
that an unusual case would warrant the involvement of a former
prosecutor with experience in the same matter. All parties
would arguably benefit from having a monitor with knowledge of
the matter at hand and from the efficiencies that such a
monitor would bring to the engagement.
Alternatively, even if the monitor herself did not work on
the same matter previously, she might wish to partner with the
former prosecutor who did for the purpose of accelerating her
own learning curve and tapping into the expertise of her
partner.
Now, it may well be that any benefits of this sort simply
are outweighed by the problems created by engaging former
prosecutor as monitors on the same matters they handled while
in government service, but that issue has not arisen in any
monitor engagements to date.
Over time, as more cases involving monitors develop,
principle one may require adjustment to ensure that its
purposes are satisfied. At that point, the department, in the
exercise of its law enforcement authority and with its ability
to fine-tune any changes that may be appropriate for existing
policy, would be well suited to make any necessary
modifications. At present, however, the department's corporate
monitor principles appear to have worked.
I thank you again for the opportunity, and I look forward
to any questions that may be asked.
[The prepared statement of Mr. Soffer follows:]
Prepared Statement of Gil M. Soffer
__________
Mr. Cohen. Thank you, Mr. Soffer.
Although I believe we probably could get Professor
Garrett's testimony in and get to vote on time, counsel has
suggested that probably we should go ahead and amble up there
and save Professor Garrett for when we come back, which should
be give or take 30 minutes.
This isn't an attempt to, like, freeze you and make it
difficult to kick the field goal. We are not calling a timeout
for that reason. We are just calling a recess so we can amble
up there. And we will recess and come back. Thank you.
[Recess.]
Mr. Cohen. We are back. And our next witness will be
Professor Garrett--Mr. Garrett. Professor Brandon L. Garrett,
UVA Law School faculty and 2005 was associate professor, area
is research and publication, include criminal procedure,
wrongful convictions, habeas corpus, corporate crimes, civil
rights, civil procedure, con law, and new forms of public
governance. Prior to joining the UVA school, he worked as an
associate at Cochran, Neufeld & Scheck.
NSS project? Good. So should New York City.
Wrongful conviction, DNA exoneration, and police brutality
cases. I just got the book with all the exonerated. Very nice.
Professor Garrett, will you proceed with your testimony?
Mr. Garrett. Thank you, Chairman Cohen, Ranking Member
Franks and distinguished Members of the Subcommittee, for the
opportunity to testify before you.
Mr. Cohen. Apparently, you have to push the button. Thank
you.
Mr. Garrett. It is pushed.
Mr. Cohen. You should draw it close to you.
Mr. Garrett. Draw it closer.
Mr. Cohen. You have to embrace it.
TESTIMONY OF BRANDON L. GARRETT, ASSOCIATE PROFESSOR OF LAW,
UNIVERSITY OF VIRGINIA SCHOOL OF LAW
Mr. Garrett. Thank you. I will keep it very close to my
mouth.
I am an associate professor of law at the University of
Virginia School of Law. My scholarship focuses on criminal
procedure, and I have studied the growing phenomena of Federal
organizational prosecution agreements.
Federal prosecutors have adopted what is a creative and
forward-looking approach to corporate prosecutions by entering
agreements designed to avoid dire consequences of an indictment
while implementing what I have called structural reforms.
Attention to these complex agreements is largely because of
their national importance, and this subcommittee has played a
crucial role by examining these agreements.
In response to scrutiny of monitor selection practices, in
March 2008, as we have heard, the Department of Justice issued
new internal guidelines. Those guidelines are useful. However,
they do not go far enough. The GAO has suggested that the
guidelines be supplemented, and I am encouraged that the DOJ is
apparently in the process of reconsidering those guidelines,
perhaps to some extent.
Since the 1990's, but mostly the past decade, Federal
prosecutors have entered more than 120 pre-indictment
prosecution agreements, typically labeled as deferred or non-
prosecution agreements. Of those, at least 48 required the firm
to retain an independent monitor.
Most agreements also include detailed provisions for the
creation or improvement of compliance programs, and monitors
are tasked with supervising the implementation of compliance
measures, often in very large corporations and over a period of
many months and years. They do not possess duties to
shareholders, nor do they represent the firm or prosecutors.
They are independent, and they wield enormous influence and
power, particularly where their duties are often broadly
defined.
The selection of these powerful monitors is the subject of
some concern. Most agreements provide that the prosecutor
primarily select the monitor, perhaps with input from the firm.
I have argued that a judicial role in selecting the monitor
could avoid any lingering perception that these highly
lucrative positions could be awarded as political plums. In
only a handful of cases, however, did a court select the
monitor.
Existing regulations do bar the appearance of favoritism or
providing favorable or preferential treatment. On the other
hand, those prohibitions do not specifically address employment
of former prosecutors. The proposed legislation does address
that problem.
Putting potential conflicts to one side, we should also be
skeptical that a former prosecutor is always necessarily the
right choice, particularly one who recently left government
service or lacks extensive compliance or industry experience.
Strong familiarity with the industry and with implementation
and analysis of corporate compliance is a crucial
qualification. We should consider other ethical and
professional obligations of these monitors as well.
Monitors should be committed to evenhandedness and a
neutral evaluation of the evidence. They should adhere to the
scope of their retention agreement. They should be impartial.
They should be efficient and prompt. They should be not just
competent generalists, but have strong familiarity with the
industry and experience and with best practices for
implementing compliance.
Proposed additions to the American Bar Association rules of
professional conduct would create additional and far more
detailed obligations for third-party neutrals. And another
model for an effort to adopt such a set of professional
standards for monitors is in their organization of independent
private secretary inspectors general, or IPSIGs.
Another important area for further inquiry is the fees
charged by monitors. I take it that the GAO is examining this
issue. Their preliminary report highlights how firms may have
little recourse, should the monitor not exercise sound billing
judgment. One advantage of judicial oversight would be to
permit the court to periodically review billing or respond to
any complaints.
Finally, the effectiveness of monitors remains unexamined.
From the outside we can't tell whether monitoring is
ineffectual, effective, or excessive and overly burdensome. Few
agreements required, as per the United States Sentencing
Guidelines, that a compliance program be itself continually and
carefully evaluated.
As the Guidelines recognize, simply creating a compliance
program is not enough, if no one is rigorously auditing its
effectiveness. Absent such ongoing assessments, we can't be
confident that a compliance program is not a mere paper
program. And this is not a hypothetical problem. Last year we
had an instance of a repeat violator, a firm that pleaded
guilty to a violation of a prior deferred prosecution
agreement.
Improved guidelines regarding selection of monitors will be
a useful first step. However, the need for ever more
complicated guidelines could be avoided by simply involving
courts not just in selecting the monitor, but in approving
agreements, evaluating monitors' effectiveness, and
adjudicating any disputes regarding implementation or a claim
of a breach. Federal courts already do this. They supervise
similar efforts during organizational probation.
So I hope that this subcommittee, the GAO and the DOJ
continue to examine corporate prosecutions and potential
improvements and as well as reforms. And I thank you for the
opportunity to speak. I look forward to any questions.
[The prepared statement of Mr. Garrett follows:]
Prepared Statement of Brandon L. Garrett
__________
Mr. Cohen. Thank you, Professor Garrett. I appreciate your
testimony.
And we will now have opportunities for Members to ask
questions, and I will begin by recognizing myself.
The--and I hate to use this phrase, but in a way I want to
use the phrase, because it is the right phrase, even when it
might be interpreted incorrectly, the 300-pound elephant that
is in the room, a little-bitty elephant. What is it? A 3,000-
pound elephant? Is that was it is? A 3,000-pound elephant. It
is the Christie situation. And----
Mr. Franks. Back off here, buddy. [Laughter.]
Mr. Cohen. You said he was three----
Mr. Franks. Don't throw your weight around here.
Mr. Cohen. I can see the story now. Franks says he is 2,700
pounds heavier.
There was a lady in his office, Ms. Brown, and she was--the
New York Times wrote about this; this is why it is the
elephant--former assistant U.S. attorney. And she resigned her
office and got involved in some things, and she took a job with
a law firm that represented one of the companies that had a
monitor in a deferred prosecution agreement. She went to work
for this firm that represented DePuy Orthopedics Inc., one of
five companies identified as a target in this litigation of
kickbacks among the makers of artificial hips and knees.
My question to the panel--I guess I will start with Mr.
Barkow and go just down the line--do you think that there
should be a limitation on an assistant U.S. attorney going to
work for a law firm that represented a monitor in a--not a
monitor, but represented a company that was monitored, that she
or he had something to do with the selection of the monitor or
the decision to have a DPA?
Mr. Barkow. Mr. Chairman, without having thought deeply
about this, my initial reaction to that is no.
I think that, first of all, there is in current law a
prohibition on a person while in government employment, and
including DOJ, working on a matter while negotiating a plan
with a particular company or with a law firm that has an
interest or financial interest in matters that they are working
on. So while the AUSA or Federal prosecutor would be working in
government, they wouldn't be able to work on a case that the
ultimate future employer was involved in.
When a former prosecutor ultimately lands at a law firm
that is actually working on matters before their former office,
I think that wall procedures whereby those former prosecutors
could be kept from working on a particular matter--at first
blush, I would think that those are probably sufficient, but
this is an initial reaction without having studied this that
deeply.
Mr. Cohen. Thank you.
Ms. Larence?
Ms. Larence. Well, what we can speak to is what we found
during the course of our audit is that the selecting committees
themselves, as well as the approval from the deputy attorney
general, require that they scrutinize whether or not the
monitor has a conflict of interest, and so there are internal
controls in the current process that Justice uses to try to
ensure against those kinds of concerns.
Mr. Cohen. Mr. Soffer? What is your thought as a former
prosecuting or U.S. attorney, and I guess it could extend to a
criminal case, if you had made a deal, made an offer? But I
don't--you know, should there be some kind of line there--some,
6 months, 1 year, something?
Mr. Soffer. Well, let me begin by saying I second Mr.
Barkow, and I only come to it from the perspective of a partner
at a firm who hires people out of government and was just
rehired himself some 9 months ago.
Anytime a new matter comes into the firm that touches on
any work involving the Department of Justice, I am asked, ``Did
you have anything to do this matter?'' If the answer is yes, a
very solid and very high wall is built so that I don't touch
it, I don't go near it, I am not consulted. In no way do I play
any role in it.
I think I--first, that is the standard approach, I think.
And I do believe it has been effective, just judging from my
own experience.
Mr. Cohen. I am trying to recall, and I should. There was
something in Los Angeles with one of the U.S. attorneys, and
they came up in the firing of the U.S. attorneys that----
What was it--did a----
Yes, Ms. Yang. And she took a job with a law firm, left,
that was----
Where it was stated the firm had some litigation before
them?
Mr. Franks. Gibson Dunn you are thinking of, maybe?
Mr. Cohen. Maybe.
Mr. Franks. Was this Ms. Yang?
Mr. Cohen. You know the situation? What was that? Do you
want to brief that for me and give me the issue?
Mr. Soffer. All I knew is that Ms. Yang went to Gibson
Dunn.
Mr. Cohen. But didn't Gibson Dunn have some action going on
when she----
Mr. Soffer. I don't know.
Mr. Cohen. Professor Garrett?
Mr. Garrett. I believe she is a monitor or was a monitor in
these agreements.
But I mostly want to second what Tony Barkow said, that
existing rules do, you know, provide that one can't be acting
as a government employee to further an interest in future
employment. And, you know, conflicts rules might prevent one
from working on matters in which one, you know, might conflict
with one's former role representing a client being the
government.
Monitors are sort of a special situation, because they
don't have a client. They are not representing anyone. They are
not providing legal advice. They are acting like third-party
neutrals.
I also think that there is really a separate issue where
unless someone had extensive, you know, compliance experience
or, you know, doing corporate governance work before becoming a
prosecutor, someone who recently left a job as a prosecutor
really may not be the right person. And they may not have
industry experience or the kind of skills that you need to
really administer something, which is incredibly complex.
To build a compliance program, to measure its
effectiveness--that is a very difficult work, and you really
would want someone who had that kind of specialized experience
and not someone who is new to that kind of industry work.
Mr. Cohen. I am going to take it one further step, and then
we are going to yield to Mr. Franks.
Last year the New York Times reported at least 30 of the 41
monitors appointed under deferred prosecution agreements since
1994 were government officials, and 23 were former Federal
prosecutor. Would you find that strange?
Mr. Garrett. The data that I have collected gibes with
that. Certainly, many of these monitors have been former
prosecutors. And from what the GAO tells us, it is not strange
at all, because it is the prosecutors, the current prosecutors,
who are primarily involved in this selection.
And when you don't have an open process where talented and
qualified people can apply, if you are depending on word-of-
mouth, you know, you would expect that former colleagues would
be the ones who would have a leg up in a word-of-mouth process,
which maybe is a reason that the entire selection should be
made more transparent.
Mr. Cohen. And, Mr. Soffer, you said something about the
suggestion that U.S. attorneys might not be skilled in certain
areas and therefore they needed these monitors. But if they
weren't skill when they were prosecutors, how do they get
skilled when they are former prosecutors?
Mr. Soffer. Well, I would say that one of the--a key
thought behind our promulgation of these guidelines when I was
in the department was precisely that. It will not always be the
case that a former prosecutor is the right choice. Let me begin
with that. And I think there is some large number of monitors
who in fact did not have prior ties with the department.
But the second observation is former prosecutors do have a
skill which, I think, is very useful in monitoring, and that is
particularly after, frankly, they enter private practice and
then get into the business of internal investigations, they
become expert at conducting internal investigations, and they
become expert at ferreting out wrongdoing, identifying
wrongdoing, devising ways to correct wrongdoing. And so they do
bring that skill to an engagement.
If it is a complex or esoteric industry or some subject
matter which is not within their ken, then it does make sense
for them, and they often do partner up with experts, such as
corporate lawyers often do or criminal lawyers often do when
they engage Ernst & Young or Price Waterhouse or other forensic
accountants, just to cite one example, to assist them with the
difficult subject matter. So they do bring a skill. It may not
be a skill that encompasses all that is required, and for that
reason they may partner with others.
Mr. Cohen. Thank you, sir.
I now yield to Mr. Franks for his questioning.
Mr. Franks. Well, thank you, Mr. Chairman.
Mr. Soffer, I will start with you, sir. Can you illustrate
an example or even a hypothetical as to what the impediments to
effective compliance monitoring would be if Congress passed
legislation to limit the department's authority to select
former U.S. attorneys or assistant U.S. attorneys to serve as
compliance monitors? In other words, what would be--what are
the impediments that would be created if we legislate in this
direction?
Mr. Soffer. Well, I see two problems, essentially. The
first is conceptual. The second is a more practical one.
The conceptual problem is that I think it involves an
encroachment on turf and that constitutionally the
department's--that is constitutionally the executive branch's,
because fundamentally the selection and use of a monitor
involves making decisions about prosecution and whether there
should be prosecution and how to resolve a case short of
prosecution, which is at its core an executive function. That
is a conceptual problem.
More practically, I believe there would be situations where
you would very much want as a monitor, as a corporation, as the
government, to engage someone who had previously served in
government service, I think for just the reasons that I was
just articulating to the Chairman.
And finally, I would just note beware of the law of
unintended consequences. And here is an example. One of the
considerations that we tossed about in thinking about these
guidelines is whether there should be a bar against monitors
who had a prior relationship with the corporation.
Now, at first blush it might conclude, well, of course,
someone who had a prior relationship with the corporation ought
not serve as a monitor, because that suggests conflicts. But we
wanted to allow for the possibility that the corporation may
have engaged a lawyer or an outsider, a monitor prior,
previously, who came to know the compliance program, who
perhaps launched the compliance program, and therefore it made
a great deal of sense to continue using as a monitor.
And I see from the GAO's report that there is at least one
such case just like that, where the corporation and the
government agreed to engage a monitor who had a prior
relationship with the corporation, the point being you don't
know what you are going to get when you pass a very broad and
far-reaching piece of legislation or bar. You may have
circumstances that you don't want to rule out.
Mr. Franks. So do you believe that, at a minimum at least,
that we should allow more time for the department to gain the
experience under the Morford memo and inform us about the
results of their experience in that regard before we proceed to
consider legislation?
Mr. Soffer. I do, but I want to make clear it may be that
the suggestions that are built into this legislation are very
sound policy. There is no question they could be. But let us
find out. Let us not look for a solution in search of a
problem.
Mr. Franks. Okay. Is it your perspective that the
department's efforts to formulate guidance designed to ensure
the integrity and transparency and the selection of corporate
monitors--do you think that those efforts have been successful?
Mr. Soffer. Well, I do, and I think that is borne out by
the GAO's report, which finds that since the promulgation of
those guidelines, the department has abided by and complied
with those principles.
Mr. Franks. Well, thank you, sir. I appreciate your
testimony.
Ms. Larence, I guess I would sort of take off the same
general idea there. Based on your work studying the selection
of compliance monitors, do you have any reason to believe that
the Justice Department will not follow its own guidance and
procedures with regard to compliance monitors or deferred
prosecution agreements in general?
Ms. Larence. Well, it has found to date of the four
monitors selected since the Morford memo, all four did comply
with the guidelines, and I think if Justice responds to a
recommendation to make sure they have transparency and
accountability that they are complying with those guidelines,
that will also help.
I did want to note that of those four monitors, three did
have former Justice experience in their backgrounds, but on
average it had been anywhere from 18 to 20 some years since
they had been employed at the department.
Mr. Franks. Thank you.
Mr. Barkow, don't you believe that there are perhaps
benefits to leaving the guidelines for the use and selection of
compliance monitors up to the department rather than setting
them into stone through legislation? Do you think there is any
advantage there?
Mr. Barkow. I think that it is certainly possible that the
Department of Justice might promulgate rules and regulations
that address this, but I guess I would point out that most of
the rules that I discussed in my written testimony and that I
mentioned here today are congressionally enacted and
presidentially signed laws. They are statutes. And I see this
network of laws that govern post-government service employment
as arising in significant part out of congressional action, so
I think it is appropriate for Congress to set the terms of
post-employment, post-government service employment for
executive branch and other government officials.
Mr. Franks. All right. Well, thank you.
Well, let the record show that when I mentioned the 300-
pounds as rather small for an elephant, that there was no other
entendre involved, okay?
Mr. Cohen. Thank you, Mr. Franks.
And now to Mr. Johnson, the distinguished Chairman of the
subcommittee On constitutional law--not constitutional law--
courts and antitrust, from the State of Georgia.
Mr. Johnson. Thank you, Mr. Chairman. And thank you for
holding this hearing.
Mr. Soffer, you said something that kind of got mine
attention, and you said legislation on this issue could become
a solution to a problem that--or a solution looking for a
problem.
But, you know, I must respectfully take issue. I think that
the public sees how the government has coddled these firms,
particularly financial services firms, and how we have, due to
lack of regulation, allowed these firms to become too big to
fail. And that is a issue that Chairman Cohen's CAL Committee,
as well as my subcommittee on competition policy, we have been
looking at.
And I think the American people probably assume that, if
they knew anything about these deferred prosecution agreements,
I would think if they knew that I would assume they would be
thinking that these kinds of agreements are monitored by the
courts, and there is a criteria that is established that would
allow for certain firms to have the benefit of the deferred
prosecution agreement.
How many of these deferred competition--excuse me, deferred
prosecution agreements been invoked? When was the first one
that was done? And how much money has been charged in fees by
the firms that are given the work of monitoring?
And also whether or not there are any--I know a lot of
people assume that African-American or minority law firms are
not capable of handling business on this level, but I would
take issue with that. There are a lot of people who have come
out of large firms, worked in this area, and know exactly how
to perform on something like this. Is there--and if you would
give me a number of minority firms that have gotten some of
this business?
Mr. Soffer. Let me begin with the third question and agree
wholeheartedly with the notion that it is entirely
unsupportable to believe that African-American owned firms or
minority owned firms are not up to the task of this work.
As to the question of have there been any and how many? I
don't know.
Mr. Johnson. Does anybody else on the panel know?
Okay. That is a problem.
And by the way, are these financial services firms
generally that get these deferred prosecution agreements?
Mr. Soffer. Are those that get deferred prosecution
agreements generally financial services firms? I don't think
so, because they have fallen in several areas, including health
care, foreign corrupt practices, and other areas, frankly, one
of my co-panelists probably can speak to even more directly
than I. But my recollection is that the majority are not
financial services firms.
Mr. Johnson. How would the public ever be able to validate
what you just said?
Mr. Soffer. Well, there are actually----
Mr. Johnson. I am still wanting those numbers, too, in
responses to my other questions.
Mr. Soffer. We have a record of virtually every, if not
every deferred prosecution agreement that has been issued. And
in fact, my co-panelist to my left, Professor Garrett, has
assembled a list of those on a Web site. So you can actually
have access to those, and we can see what those agreements
provide.
Mr. Johnson. Some are done prior to indictment. Others are
done after indictment. If the deferred prosecution agreement is
entered into prior to indictment, is there any way for the
public to be able to assess the numbers of those and which
firms got the work? Any transparency?
Mr. Soffer. I believe there is transparency as to deferred
prosecution agreements, which by definition at some point
involve the filing of charges and in almost every instance the
filing or publication of the document that represents the
agreement.
With respect to some number of non-prosecution agreements,
it may be that there is not disclosure of those agreements to
the public at large. And I must confess to being at something
of a disadvantage. I am no longer in the department, so I can't
track this information, but I believe that is accurate.
Mr. Johnson. All right. And anyone else is--please feel
free to respond to any of the questions that I have posed.
Ms. Larence. I have some data for you, sir. The first
agreement that we track started in 1993, and to date there have
been 152 of those.
In terms of transparency, GAO was able to identify the
monitors that were selected in 46 of the 48 cases, and we were
able to look at the background, publicly available information
about the backgrounds of those monitors, and so we could see
their employment history. So that type of information is
available.
But we also found, similar to what Mr. Soffer said, a
deferred prosecution agreement would be available because of
the filings in court, but it is unclear to what extent non-
prosecution agreements are publicly available.
Mr. Johnson. Do we have numbers on how many deferred
prosecution agreements were entered into prior to indictment?
And could that be the reason why you were only able to get
information on--what--48 of the 152 deferred prosecutions--or
the GAO, that they looked at?
Ms. Larence. Sorry, sir. I just wanted to clarify. There
were 152 agreements in total. Of those 152 agreements, 48 of
them required a monitor. And the department has selected 46
monitors to date. There's still two cases that they haven't
selected, so we were able to obtain publicly available
information on all 46 of the monitors.
Mr. Johnson. Okay. I understand.
Ms. Larence. I don't have a response, sir, to your earlier
question about pre-indictment.
Mr. Cohen. Thank you.
We will do a second round, and I will obviously start.
We are looking at two areas of legislation, which I would
like your help on. One is the idea of having a more transparent
and check and balance type of system in selecting the monitors.
And the other is the question on the revolving door.
And so, you know, Mr. Soffer, you said these are executive,
and it is a system of balances and checks in the government.
But, as Mr. Barkow mentioned, most of the prohibitions on
revolving doors are statutory. And there are other statutory
limitations on executive power. And if you don't have some
type--I mean the executive----
It is an interesting situation here. We have got a Member
here on the Republican side, who is more or less defending and
saying we don't want to restrict the Obama administration from
all these situations, and yet we have got Democrats that think,
well, it would be a good idea to have general restrictions,
because it is, you know, get goose and gander.
And, you know, I just--don't you think that there has to
be--the legislative has to find ways, because whether it is
Obama or whether it is Bush, the executive has a tendency to
take care of their own. That is just politics and human nature.
And there should be some way that there is a check and
balance on that natural tendency to try to take care of either
friends who are prosecutors or friends who have contributed or
whatever. You don't see that as a necessary part of the system?
Mr. Soffer. Well, you know, I do as a general matter see
that as an important part of the system, but I think here we
are dealing with a very unusual circumstance, almost sui
generis. And that is, a, it is in the realm of criminal
prosecution, which is a different animal to begin with. So many
of the dimensions of criminal prosecution are not transparent.
There is an exquisite sensitivity, in fact, to if not secrecy,
at least to confidentiality in the criminal process.
And it is also, perhaps more than any other function, a
core function of the executive branch. So I would argue that it
is a slightly different scenario than the norm in that there
has to be a greater sensitivity to imposing requirements on a
process that is fundamentally prosecutive.
Mr. Cohen. Well, like probation--the executive can decide
to give probation, but nevertheless the probation system and
the option is created by the Congress.
Mr. Soffer. That is true. Of course, there are many
features of the probation system which are also not for public
view, including reports provided by the probation officer to
the court that the public cannot see.
So again, as a conceptual matter, I don't disagree with
you, Mr. Chairman. But when it comes to the selection of a
monitor himself or herself, because it is so much fundamentally
a part of the prosecutor decision, I just think great care has
to be taken.
Mr. Cohen. What about the idea of the judge being involved
in it? I mean that is, again, the judge is a judicial official.
Mr. Soffer. Yes.
Mr. Cohen. You don't get into the--I know the prosecutor is
the executive, but the judge has got ultimate discretion over
the case, and when it comes into that type of situation, the
judge is who is--you know, don't you see that it may be good
for the judge to check off on something as a check and balance?
Mr. Soffer. Here, too, I would be very cautious, because
the--first, as a practical matter, to involve judges in
proceedings that have not yet ripened into a court matter, and
after all, some of what we are talking about here are
negotiations between the government and a defendant or a target
that may never reach the point of a plea agreement, of criminal
charges being filed and pursued, so you already involve judges
stepping beyond the normal bounds.
As a practical matter, too, that may impose serious delays.
Judges are very good at what they do, but they are very
overloaded. And to present more matters to them, which would
involve and would have to involve, if they are going to do the
job right, a careful look at who the monitors are, what the
facts of the case are, what are the needs of the case, what are
the qualifications of these monitors, could impose a serious
delay.
Mr. Cohen. Professor Garrett, what about the executive
having total autonomy here?
Mr. Garrett. I respectfully disagree with--I do disagree
with Mr. Soffer. I think that having courts involved would make
sense and would actually simplify the process. You know, there
are some agreements where judges were involved in the selection
of the monitor. There were only three of them, but it wasn't a
burdensome, cumbersome process, really.
The firm submitted a few names. The prosecutor submitted a
few names. And I think in at least one the regulatory agency
submitted names of people they thought would be qualified. And
the judge picked the one that seemed the most appropriate.
You know, given the number of agreements that we have each
year--you know, in the 20's in a good year; there have been 14
so far this year--we are not talking about an enormous number
of agreements that would impose a substantial burden on the
judiciary.
And this is not a fundamentally prosecution driven decision
here. There are many, many contexts in which courts are the
ones that appoint a special master or a monitor as part of a
corporate probation agreement like you mentioned, Mr. Chairman.
So this is already the type of decision that is often made by a
judge and not by a prosecutor.
You know, the only issue would come up in non-prosecution
agreements where no document is filed with the court, and for a
court to be involved, they would have to be pursued as deferred
prosecution agreements, because there there at least is a
charging document filed.
Mr. Cohen. Mr. Barkow, do you have a thought?
Mr. Barkow. Yes, Mr. Chairman. I think that it is important
to keep in mind that prosecutors today in the criminal justice
system, particularly the Federal system, have a great deal of
what would ordinarily be viewed as regulatory power. Ninety-
five percent or more of defendants in criminal cases plea. The
pleas are largely driven by prosecutive charging decisions
because of the penalties that apply and the incentives that are
provided to defendants to plead guilty rather than go to trial.
And it is no different in the corporate arena. In fact, it
may even be a more extreme example, as I discussed in some more
detail in my written testimony. And so prosecutors have
tremendous power to put a case in a corporate defendant, or
potential corporate defendant, in a situation where they
really, acting rationally, need to accept one of these deferred
prosecution or non-prosecution agreements, and they need to
accede to the appointment of a monitor.
And I think that that is really akin to classic regulatory
activity. And when we look at regulatory activity, we are
concerned about the appearance of self-dealing. We are
concerned about the revolving door. And so I think that
congressional oversight over the activities of executive branch
officials who are involved in regulatory activities is very
important.
Mr. Cohen. Under Mr. Soffer's theory, you would have no
check and balance. I mean this is an executive function. They
can just decide we are going to give you a call. Hey, we got
this thing, and we maybe can handle this in a little bit
different way, and here is who is going to be your monitor. And
here we do it, and there is no check and balance. It is as if
they think they are being gouged or overly scrutinized.
Mr. Barkow. I think that is right, Mr. Chairman. I mean
there are certain areas where the executive needs more
authority and needs to have more discretion. I don't think that
this is one of them, where it is necessary to the carrying out
of the executive function.
Mr. Cohen. Thank you.
I now yield to the defender of the Administration, Mr.
Franks.
Mr. Franks. So, Mr. Soffer, you talked about the divisions
between the executive branch and the judicial branch and the--
even maybe in this case--the legislative branch. That is
something we try not to talk about too much--the Constitution
in the Judiciary Committee. It is kind of been a hands-off
subject most of the time.
But isn't there a separation of powers issue with involving
judges in the process? I mean can you expand that and tell us
why?
Mr. Soffer. Well, there is. And I begin by--I began by
observing a separation of powers issue even with this branch.
But there certainly is with involving judges. Again, judges are
entrusted with the job of adjudicating disputes. They do that.
They do it well. And only they can do it.
Prosecutors are entrusted with the job of law enforcement,
which includes within it the decision about whom to prosecute,
how to prosecute, whether to prosecute. And so the key question
simply becomes, in my view, what are we talking about here?
Is the selection of a monitor more akin to an adjudication
of a dispute between two rival parties, or is it more akin to a
question of how to resolve a criminal case and how best to do
it and through what mechanism to do it? And I submit that it is
the latter, rather than the former. And because it is the
latter, it is at its core an executive function, not a judicial
one.
Mr. Franks. Well, you may have probably figured out that I
agree with you. But, you know, whenever we bring the judge and,
you know, usually in the regular judicial process, if it were a
judicial matter, there would be some type of, you know,
oversight of another judge.
I mean what would be the review in this setting, if the
legislation passed as written? If the judge, say, made a
decision on a monitor that some of the participants disagreed
with, would there be the standard judicial review process? Or
would the legislation lock it in?
Mr. Soffer. If this legislation passed now, it would have
the force of laws. I don't know what review process there would
be. It would----
Mr. Franks. I am talking about the judge's action under the
legislation. If the judge chose a monitor that someone didn't
like, do you just go ahead and review that? I mean would we be
able to appeal that judge's decision?
Mr. Soffer. And it is hard to know, frankly, because there
is no process that is laid out for that issue.
Mr. Franks. I think that was really my point.
Mr. Soffer. Oh.
Mr. Franks. But from your perspective, how well--the
department's deferred non-prosecution agreements--how well have
they worked over the years? Given the track record of the
criminal justice system in general, how--do you think these
stick out like a sore thumb somehow, or an 800-pound gorilla or
anything like that?
Mr. Soffer. Yes, I--no, I don't. I think they have worked
well. And it is worth remembering what was the impetus behind
these, or certainly behind their expanded use. And that was the
prospect of an Arthur Andersen, just to be blunt.
To prosecute a corporation, if the choice is between
declining and prosecuting, and the fact, say, you really need
to prosecute, because there was some wrongdoing here, and that
is your only choice as a prosecutor, and you prosecute, you
potentially bring down a corporation, and you harm shareholders
and pensioners and the public and employees.
That is not a result anyone should want, so deferred
prosecution agreements, non-prosecution agreements really do
hit the middle ground, which is critical, because it both
observes law enforcement needs and the needs of the public.
Mr. Franks. Well, I mean I think everyone here wants to try
to arrive at the most just, you know, place. But I agree with
you these monitors and the deferred prosecution agreements put
another tool in the hands of law enforcement in a way that I
believe can serve the overall cause of justice pretty
significantly, especially in these complex corporate
involvements.
And I guess I--if it is all right, Ms. Larence, let me just
ask you one question.
And then I will yield back, Mr. Chairman.
The main problem you identify in your written testimony
seems to be with regard to the lack of clarity in the Justice
Department's role in resolving disputes between the company and
the monitor. How would you suggest that the department address
that concern?
Ms. Larence. We are making a recommendation to the
department that they require the litigating units in U.S.
attorney offices to clearly specify in the DPA or NPA itself
the role that the Justice Department will take in that specific
case, what kinds of conflicts do they feel they can address and
what process the company can use to raise these concerns to
Justice so that the company knows at the beginning whether they
can look to Justice for help on these issues or not.
Mr. Franks. Well, thank you.
Mr. Chairman, sometimes, you know, it is amazing how
perspectives change depending on what the subject is and which
side which party is on. But, you know, a lot of times we have
the debate as to, say, drug users, where they get caught
abusing drugs. And a lot of times those on the Democrat side of
the aisle say that, well, we need to have the ability to put
them in treatment with the threat of prosecution later. But I
actually think there is a place for that. I really do.
But, you know, seems like we are kind of switching roles
here a little bit. There is a tremendous place for these
deferred prosecution agreements. They offer a new tool, and I
think that to push them more in the direction of--a litigious--
to try to press it into litigation is not a good move, unless
there was some major problem with where we are right now, and I
just don't see that. So I have already expressed that, and I
yield back.
Mr. Cohen. Thank you, Mr. Franks. And I am not against
deferred prosecution agreements or drug users who--whether they
are on the radio or not--having an opportunity to clean up
their act. Either way, it is fine with me.
But I do think there needs to be some controlling of the
system to make sure that people are selected for the right
reasons to be the monitors. And I don't think that having a
judge involved or some other way to make sure that there are
not cronyism involved is an important thing to make this system
work.
Mr. Barkow, Ms. Larence indicated only four monitors have
been selected after the guidelines of the Morford memorandum,
since it took effect. And the selection process was documented
in only two of those cases.
In light of that, please respond to this statement Mr.
Soffer made--or his written testimony--``The Justice
Department's effort to formulate guidance designed to ensure
integrity and transparency in the selection process appears to
have worked.'' How do we know it has worked, when we have only
had two cases?
Mr. Barkow. I think it--Mr. Chairman, I think it is hard to
tell. The GAO report discussed almost exclusively monitorships
that were entered into before the writing of the Morford memo,
and it revealed that in those instances DOJ essentially
selected the monitors and that DOJ selected those monitors
largely from a pool of people that the decision-makers
themselves knew.
And as of the time of the GAO report, written report, there
were two, and now I guess there are four. And so I don't know
that we have sufficient data to really determine exactly how
the Morford memo is working. But as I pointed out, the Morford
memo itself may not have been intended to, but it doesn't
actually target exactly what this proposed legislation might
target.
Mr. Cohen. Mr. Soffer, the fifth requirement of the first
principle in the Morford memorandum is that corporations should
agree not to employ or become affiliated with the monitor for
at least a year after the monitorship expires. If that makes
sense, why doesn't it make sense that an AUSA shouldn't go to
work for a monitor for a year?
Mr. Soffer. Well, two observations. The first is the
impetus behind that restriction our suggestion is that you
don't want the possibility that the monitor, while working as a
monitor, was all along angling for employment by the
corporation afterwards.
Mr. Cohen. Right.
Mr. Soffer. And understood. And there is no question that
animates the same concern that we have been discussing today,
which is don't we worry that an AUSA will likewise be so
motivated? The short answer is it may well be so in policy, and
I want to come back to that point.
I am not disagreeing that there is validity to these
concerns and that it may be appropriate to impose that
restriction. My point is simply that it hasn't reached the
level now where it is clear that it is a problem or that it
would be a problem. And if it does reach that point, then let
the department do exactly what it is done in these principles,
which is to formulate a suggestion and to put it out as
guidance. There is no reason why it can't do the same if the
issue arises in this outher context.
Mr. Cohen. Well, let me ask you this. We started out
appointing these monitors in what year--1994, 1996? When did we
start with DPAs and monitors?
Mr. Soffer. DPAs started in 1993, 1994. I can't recall when
the first monitor was selected.
Mr. Cohen. But whatever. It has been a while ago.
Mr. Soffer. It has been a while.
Mr. Cohen. And when was the Morford memorandum issued?
Mr. Soffer. March of 2008.
Mr. Cohen. So we relied on the Clinton administration and
the Bush administration to monitor themselves, and yet they
didn't do it till 2008. The legislative branch might have been
slumbering in not coming up with something, or maybe they
proposed something that made this all of a sudden become a
front burner issue for the Justice Department.
But if the Justice Department has come up with the Morford
memorandum--let us assume they hadn't, because they hadn't done
it in the previous umpteen years--should the legislative, even
if they think--and you think the Morford memorandum is a good
thing----
Mr. Soffer. I do.
Mr. Cohen. Well, should the legislature not say we want to
pass such a law? We should just wait on the U.S. attorney to do
it and the attorney general? And if the attorney general
doesn't do it, well, that is their business. They are not doing
it. So we think it is good government, we think it is a grand
thing, but they are not doing it, so we are not going to do it.
That is not--doesn't make sense, does it?
Mr. Soffer. Well, I think, put in those terms, no, it
doesn't make sense. I think----
Mr. Cohen. That is enough. [Laughter.]
Go ahead.
Mr. Soffer. No, I think that the Morford--candidly, the
Morford memo had its genesis at a time when there was some
concern about one particular instance. What I worry about is it
is an example of bad facts making bad laws, lawyers like to
say.
The Morford memo--although, frankly, not spurred entirely
by that incident--nevertheless arose around the same time. It
tried to look beyond just the moment and tried to take into
account all relevant principles and tried to consider all
possible permutations down the road.
What I worry about is that if we take that same incident,
and we were moved by the moment to pass legislation--which is
fundamentally immutable; it takes an act of Congress to undo an
act of Congress--then we are going to regret what we have done.
And if there is no pressing need to do it, because the
monitors are in effect and because--or rather, the principles
are in effect and because at least on the--granted, it is not a
great body of evidence thus far, but on what we know, it has
worked, or the department has abided by, then I don't think we
take the next step and make it immutable.
Mr. Cohen. I am going to ask one more question.
I didn't see Mr. Johnson come in before I started asking
questions, and I apologize to you for that.
But he brought up the issue about the fees that have been
paid some of the monitors, and the Ashcroft is the 800-pound
gorilla--and $52 million. Have any of you all looked at that or
had any opportunity--maybe Ms. Larence--to look at exactly what
he charged? And you said $300 to $900 an hour is a typical fee.
Ms. Larence. We surveyed----
Mr. Cohen. Shouldn't somebody monitor the dollar amount? I
mean that corporations are kind of afraid. This person has got
them, you know, in their grip, and they can't question the
charges. Shouldn't there be kind of an omsbudsperson?
Mr. Soffer. Well, let me just offer a plug, then, for Ms.
Larence's report, which included--at least the earlier report,
or it is actually the most recent--a recommendation that the
department make clear its role in the deferred prosecution
agreements and make clear its role in serving as an ombudsman
between the corporation and the monitor and in seeking to
resolve disputes. It is an excellent recommendation. That is
one I believe the department is likely to follow.
Mr. Cohen. And did you--Ms. Larence, do you want to--you
are all going to be saved in a few minutes by the buzzer, but
do you have any--want to follow up on that all?
Ms. Larence. We did survey a number of monitors. And of the
13 that we surveyed, they reported that the hourly fees ranged
from $300 to $900 an hour. We did not have access to the Zimmer
agreement to be able to look at the charges in that individual
case.
Mr. Cohen. Does anybody have familiarity with the Zimmer
agreement?
Professor?
Mr. Garrett. I think this subcommittee tried that without
success, to get more information about the billing and that
agreement. My understanding was that what the subcommittee
found out was that it was a retainer, and so there wasn't
hourly billing records. And so that again raises the question
of what recourse the company has if a monitor isn't exercising
good judgment in terms of billing or if there is a retainer
that at the outset seems excessive.
Ms. Larence. We do know in that case that the company did
go to the U.S. attorney office to raise concerns about the
fees, but the U.S. attorney office sort of said you need to
work it out between the monitor, and the company felt like they
had obviously no leverage to do that, so they did feel like
they didn't have an avenue in that case.
Mr. Cohen. Right.
Mr. Soffer, don't you think there needs to be somebody out
there to be the good guy or the good girl?
Mr. Soffer. Well, if now we are talking about engaging, for
example, a judge for the purpose of flyspecking agreements for
the legitimacy of the fees that are being charged and to
moderate disputes in real time as that goes forward, I think we
really are trodding too much--we are demanding too much of
judges, and I think we are encroaching too much on the
executive function. I think we are imposing delays.
And so I come back to Ms. Larence's suggestion in her
report that let there be a fully collaborative process,
including the Department of Justice, if there are genuine
disputes about fees or other issues.
Mr. Cohen. But it didn't work. The U.S. attorney told them,
``Go work it out. I am not getting--I am not going to mess with
this. You go work it out with the firm.'' And they tried the
firm. The monitor had gone and--the firm had gone to the
monitor, and they couldn't work it out. It never happened.
And they are just kind of--and I have had consultations
with a couple of these folks, and they just say they have no
choice. And some of the expenses are outlandish. Doesn't the
Congress have a duty to represent these corporate interests? I
mean I know some people don't care about corporations, but some
people do.
Mr. Soffer. Oh, I represent them, and I care deeply about
them. But I don't think that their interests are ill served or
underserved by the current structure. My experience has been
they are not shy about expressing their concerns.
And the scenario that we are now describing obviously
predated the Morford memo, and it certainly has predated the
GAO's directive, or recommendation rather, that the department
consider inserting itself more aggressively. So I think it may
be a different picture going forward.
Mr. Cohen. Mr. Johnson, with apologies for overlooking you,
you are recognized.
Mr. Johnson. Thank you, Mr. Chairman.
These deferred prosecution agreements--I don't disagree
with them in principle. I think that prosecutors should have
that ability to use when legitimately necessary. And insofar as
criminal cases go, I have always thought that it is a great
idea for prosecutions to be deferred for first offenders,
should it be a logical and useful step and in society's best
interests.
And by the way, all of those types of agreements are
subject to public records, although you may not be able to get
pre-sentence investigation reports. But you go to the clerk's
office, and you can find out all about these kinds of
agreements.
And I believe that there should be the same kind of
mechanism on the top end. When I say the top end, I mean the
corporations that can afford to pay a $7 million fee of a
monitor. And so my purpose today is just simply to raise some
issues that legislation may need to address.
Can you tell me--and I know that deferred prosecution
agreements are entered into to maintain stability of a company
that is could be the non-financial or financial that has a
crucial role in the American and perhaps world economy. Are
there any other purposes that you see as legitimate for these
agreements to be invoked?
Mr. Garrett? Professor Garrett?
Mr. Garrett. Yes, I mean many of the companies that have
been subject to these agreements were large corporations that
have, you know, public importance. And I think, you know, the
department has said that one of the purposes of these
agreements is to focus sort of in a forward-looking way on
creating reforms to make sure that whatever the misconduct that
was, that it didn't repeat.
And so that is a laudable purpose, and I suppose the notion
is simply punishing the firm, fining the firm may not be
sufficient if reforms aren't in place, and second, that an
indictment and the consequences that could flow from an
indictment or conviction might be overkill, over deterrence,
and they might indeed cause an Andersen-type situation.
Mr. Johnson. Don't you think that that is a good thing, if
a too big to fail entity is brought to justice and given the
death penalty, if you will, strapped in an electric chair,
fried to death like we had here in Virginia this week? Or their
choice could be to do the--you know, the--of the poison peel
kind of thing in being executed. But don't you think it is good
for the public to see that this large entity is not above the
law?
Mr. Garrett. You know, I suppose that is what the
organizational prosecution guidelines, the Thompson memo, was
about. Not all companies receive these agreements. There are
certainly still plenty of corporations that are indicted and
sign plea agreements. Some of those plea agreements require the
imposition of monitors just like deferred prosecution
agreements do, except the company then has the consequence of
that conviction.
Mr. Johnson. Well, certainly, and once they are indicted,
that becomes public information, unless it is under seal, which
does not occur in the overwhelming majority of cases, correct?
Mr. Garrett. It certainly has been a struggle sometimes to
get copies of some of these deferred and non-prosecution
agreements. I think in particular because of the work of this
subcommittee, the department has made them public, and it has
been much easier lately to get copies of them.
But what you also bring up in terms of just making sure
that the work of sort of remedying misconduct occurs in fact,
you know, we really do want to make sure that not only are
appropriate monitors being selected, but we want to make sure
that they are really doing their jobs effectively so that we
don't have any more misconduct in these organizations.
And so I am also concerned not about monitors just doing
too much work or billing too much, but you want there to be
some check if the monitor is not doing enough. And that is
something we don't know about. I think that is something that
the GAO may be looking at. But we want to really be sure that
these monitors are effective. And I don't know what sort of
assessment is being done so that we can have some sense that
these monitors really are doing effective work.
Mr. Johnson. Thank you. And I really do believe that this
kind of business that is sent to law firms to become deferred
prosecution monitors should be opened up to minority firms. I
have a feeling that it is not.
Thank you.
Mr. Cohen. Thank you.
Professor Garrett, you said that you thought that this
agreement memorandum came about after the subcommittee started
its work. Did you say that? Or maybe it was Mr. Soffer in his
written testimony.
Mr. Soffer, you were there. You were there when the
memorandum came about. What case was it or what subcommittee
hearing triggered this?
Mr. Soffer. It actually preceded the subcommittee hearing.
So as I recall the sequence of events, some time in the early
to mid, perhaps, 2007, the department began its work
considering whether monitor principles would be appropriate. In
November, I think it was, of 2008 the now governor or Governor-
elect Chris Christie situation came into full view. And then it
was in March of--November 2007, I am sorry--March of 2008 that
the principles were promulgated, and then very shortly
thereafter there was the first hearing on this matter.
Mr. Cohen. Well, I thank each of you for coming and giving
your testimony. I think we have had a great panel. We have all
learned a lot, and we will try to--if you have any other
thoughts you would like to submit, we would appreciate it in
helping us to come through with our legislation or where we
should go.
Without objection, Members have five legislative days to
submit any additional written questions to you, which we would
forward to you and ask you to answer as promptly as possible.
They will be made part of the record. Without objection, the
record will remain open for 5 legislative days for the
submission of any other materials.
And I thank everyone for their time and patience.
The hearing of the Subcommittee of Commercial and
Administrative Law is promptly adjourned.
[Whereupon, at 1:21 p.m., the subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Material submitted by the Honorable Steve Cohen, a Representative in
Congress from the State of Tennessee, and Chairman, Subcommittee on
Commercial and Administrative Law